TMS Blog Today = What’s up in Mortgage Today (AM) – 10/07/2025

Bond markets staged an impressive morning comeback after overnight weakness pushed 10-year yields toward the technically significant 4.20% level. Early buyers emerged at the CME open, driving Treasury prices higher and pulling yields back below 4.13%. The NY Fed Survey of Consumer Expectations showed rising unemployment expectations, adding fuel to the bond rally despite the data typically carrying minimal market impact.

The government shutdown continues to create information gaps that are keeping investors especially sensitive to alternative economic indicators. Speculation about who has early access to delayed government data hasn’t deterred futures markets from pricing in a 96% probability of a 25 basis point Fed cut by month-end. Markets are also positioning for another potential cut in December as political uncertainty combines with softer economic signals.

A concerning trend is emerging in the mortgage-backed securities market as large servicers aggressively pursue recapture strategies to retain control of borrower relationships. This behavior is bleeding into generic note rate pricing, particularly affecting excess interest-only strips. Both GSEs are steering correspondent sellers toward excess strip executions even on familiar note rate windows, suggesting structural changes in how servicing value is captured.

Lower coupon UMBS securities continue showing stronger demand due to expectations of slower prepayment speeds in the current rate environment. The 5.0% coupon is gaining ground amid the recent rally, while higher coupons face headwinds from potential speed increases. For originators seeking prepayment protection in higher coupons, specialized pools with investor, Florida, high LTV, and FICO-centric characteristics remain attractive as refinance risk diminishes.

Home affordability has reached its best level in 2.5 years according to the ICE Mortgage Monitor, with the median mortgage payment representing 30% of median income. Home price appreciation continues moderating, with September data showing just 0.1% quarterly growth nationally. The combination of slower price growth and falling rates is creating opportunities for borrowers who have been priced out of the market.

Locking vs Floating

The government shutdown creates muted risk-reward scenarios for lock/float decisions, but recent trends favor conservative positioning. The modest rally to two-week rate lows presents compelling lock opportunities for risk-averse clients. Risk-tolerant borrowers may wait for the delayed jobs report, but only if bonds don’t lose significant ground in the interim.

Today’s Events

– ISM Business Activity (Sep): 49.9 vs 51.8 forecast, 55 previous
– ISM Non-Manufacturing PMI (Sep): 50.0 vs 51.7 forecast, 52.0 previous
– ISM Services Employment (Sep): 47.2 vs 46.5 previous
– ISM Services New Orders (Sep): 50.4 vs 56.0 previous
– ISM Services Prices (Sep): 69.4 vs 69.2 previous

Bond Pricing

UMBS 30 yr
| Coupon | Price | Intra-Day Change |
| 5.0 | 99.38 | 0.07 |
| 5.5 | 100.95 | 0.04 |
| 6.0 | 102.16 | -0.01 |

GNMA 30 yr
| Coupon | Price | Intra-Day Change |
| 5.0 | 99.57 | 0.03 |
| 5.5 | 100.76 | -0.06 |
| 6.0 | 101.65 | -0.06 |

Treasuries
| Term | Yield | Price | Intra-Day Yield Change |
| 2 yr | 3.58 | 99.847 | -0.012 |
| 3 yr | 3.594 | 99.384 | -0.014 |
| 5 yr | 3.712 | 99.605 | -0.02 |
| 7 yr | 3.905 | 99.817 | -0.026 |
| 10 yr | 4.129 | 100.985 | -0.028 |
| 30 yr | 4.728 | 100.351 | -0.024 |